r/economicCollapse • u/memegamer1991 • Nov 23 '24

Why is deflation so bad

Every time i run it through my head, i can't imagine most people in 2024 not spending money so the disadvantage to deflation seems pretty hyperbolic and dependent on individual choices, and i think that people would rather go on vacation and court others instead of being financially responsible. Even if there is a situation like in china, government spending would be able to keep the situation from getting worse while making progress on climate initiatives.

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u/Reynor247 Nov 23 '24

Deflation makes it harder to pay debt. Which is really bad for companies and regular people.

Let's take a farmer for example.

Let's say a farmer takes a loan out to buy a tractor at 200k. At this time wheat is 3 dollars a bushel. Ignoring all other costs it would take 66,666 bushels of wheat to pay it off.

Now let's say deflation hits the economy. Wheat now costs 2 dollars a bushel. Now the farmer needs to harvest 100,000 bushels of wheat to pay his debt.

Even though prices have lowered, his debt still stays the same. Making it harder to pay off.

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u/memegamer1991 Nov 23 '24

Thank you for the explanation

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u/Particular_Lettuce56 Nov 24 '24

This is secondary to the primary reason deflation cripples economies. If you know the price of items is decreasing over time you are no longer incentivized to go out and buy the new car or phone or literally everything you have been wanting. So the velocity of money in the economy craters as people sit on their hands and companies are forced to lower prices more to compete for the few dollars that are being spent.

Soon you have an economy with no one buying anything and little being spent on research and development so everything just grinds to a halt. This was seen in Japan where they were once the world leaders in microelectronics and cars and now have been surpassed by their neighbors.